With digital banking fraud losses reaching R1.9 billion and complaints hitting record highs, experts say banks must rethink how they handle fraud disputes to restore customer trust.
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South Africa's banking sector is being urged to modernise its fraud dispute processes and make better use of existing fraud intelligence as digital banking scams continue to escalate and customer complaints reach record levels.
According to recent industry data, digital banking fraud incidents increased by 86% in 2024 compared to the previous year, resulting in losses of approximately R1.9 billion.
Banking applications accounted for 65% of reported incidents, highlighting the growing risks facing consumers as digital banking adoption accelerates.
At the same time, the banking division of the National Financial Ombud Scheme recorded more than 15 000 complaints in 2024, its highest volume on record. Nearly 80% of those cases were decided in favour of the banks.
Industry experts believe the growing disconnect between fraud victims and financial institutions is not necessarily rooted in the fraud itself, but rather in how disputes are handled after the incident.
Pieter de Swardt, Senior Vice President of Global Customer Success at Entersekt, said many consumers feel frustrated by dispute processes that remain largely manual and time consuming.
"While most of the major banks have digital fraud dispute reporting channels, the actual fraud dispute process remains cumbersome and largely analogue. It's not surprising that there is a growing perception among local consumers that the system is stacked against them," he said.
De Swardt noted that banks already collect extensive information when processing transactions, including device fingerprints, geolocation data, behavioural biometrics, authentication outcomes and risk scores generated by fraud detection systems.
However, much of this information is only used once when determining whether to approve or reject a transaction.
"Most of that intelligence is currently used once to decide whether to allow, challenge, or deny a payment. This data is then effectively lost to the dispute teams who are forced to reconstruct what happened after the fact," he said.
He argued that banks should treat dispute resolution as an extension of risk based authentication rather than as a separate administrative process.
By doing so, financial institutions could provide customers with more detailed transaction information through banking applications and online platforms, helping them identify legitimate transactions and avoid unnecessary disputes.
"Where merchant names are unclear, banks can display additional data such as merchant category, location, and even past spend patterns to help customers recognise legitimate payments and avoid unnecessary disputes altogether," said De Swardt.
He added that the same evidence used during transaction authentication, including behavioural biometrics, device data and geolocation information, should be made immediately available to dispute resolution teams.
This, he believes, could significantly reduce investigation times while improving transparency.
"By reframing disputes as part of risk based authentication, not just an admin queue, disputes become a continuation of the same risk based logic, using the same signals, models and audit trails, but with a lot more transparency for customers."
The need for improved transparency is supported by international research. A study conducted by researchers from the University of Notre Dame and Carnegie Mellon University found that customers who experienced fraud were more likely to leave a bank because of poor communication during the dispute process than because of the fraud incident itself.
The study also found that when banks were able to identify the fraudster responsible for an incident, customer attrition fell significantly.
According to De Swardt, existing analytics systems could also be used to provide provisional outcomes and regular updates to customers during investigations, creating greater confidence in the process.
However, he cautioned that banks must strike a careful balance between transparency and security.
"Presenting more context about transactions in digital channels helps avoid unnecessary disputes, but over exposing internal signal data could give sophisticated fraudsters clues about how to evade controls," he said.
As fraud techniques become increasingly sophisticated, De Swardt believes banks already have many of the tools required to improve customer outcomes.
"The data and decisioning engines banks already operate for fraud prevention give them a ready made foundation for faster, more personalised and more transparent dispute journeys," he said.
"Experience shows us that smarter use of risk and contextual signals promises lower handling costs, better ombud outcomes and, perhaps most critically in a high fraud environment, a way to rebuild trust in digital banking."
With digital fraud continuing to rise and consumers becoming increasingly reliant on online banking channels, industry observers say improving dispute resolution may become just as important as preventing fraud in the first place.
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